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Innovation & Jobs - High taxes do not hinder competitiveness, says report(EurActiv (English) Via Thomson Dialog NewsEdge):The World Competitiveness Yearbook (WCY) ranks and analyses the ability of 60nations to create and sustain an enterprise-friendly environment that promotes competition betweenbusinesses. Asenterprises operate in a national environment, the WCY methodology consists of studyingfour main factorsof thenational environment:economic performance,government efficiency, business efficiency and infrastructure. The WCYhas beenpublishedwithout interruption since 1989 by the IMD, a Swiss business school. Issues:Competitiveness and EU-25 Finland comes the highest (sixth) of the EU-25 in the 2005 world competitiveness ranking. Luxembourgranks tenth, Ireland 12th and Sweden 14th.The EU-25's three largest economies France, Germany and Italy rank 30th, 23rd and 53rd respectively. Estonia, best of theEU-10,comes in 26th position, whereas Poland is atthe bottom of the pile in57th positionafter Russia (54th) and Romania (55th). "It appears thata key determinant of Europe's future lies in its ability to revive domestic private consumption, to sustain competitiveness as a whole" states the report. Taxes and competitiveness Taxation, with the exception of corporate taxes, andcompetitiveness have a complex relationship which the WCY describes as a 'minefield'.Noclear correlation betweena country's total tax pressureand its overall competitiveness or growth rate seems to exist.Despite high taxation (above 40 per centof GDP), Finland,Denmark andLuxembourg rank among the top ten in competitivenesswhileEstonia, Ireland, the Slovak Republic and the US had excellent growth rates with much lower taxes (25 - 34 per cent of GDP). According to theWCY, it seems that"competitiveness reacts differently to the various types of taxes that are levied. A direct impact is more easily established between corporate taxation and competitiveness than with personal, social or indirect taxes."Scandinavian countriesare known to heavily tax personal income and consumptionandfavour corporate profits. Anotherobservation is thatno direct correlation between government spending andcompetitiveness seems to existeither.Both high level (Sweden,Denmark, Finland, the Netherlandsand the UK)and low level (Singapore and Hong Kong) government spending countries show high competitiveness performance. According to the WYC,it is above all the efficiency and quality of government expenditure and not its sizethat seems to matter."Government spending is not necessarily bad for competitiveness if it is efficiently directed to investments in infrastructure," indicates the book's executive summary. Accordingto the publication, thereal 'engines' of competitiveness are, however,science, technology, entrepreneurship, finance, logistics and education."A Science Culture plays a central role. In the end, science, supported by education, is at the core of competitiveness for a nation." Taxes still matter as a production cost and are one of the reasons why companies relocate abroad."The real impact of taxes is, thus,on job creation or destruction,"underlines thebook.A higher cost of business can, however, be in part compensated by improving the "ease of doing business". The simplicity of the tax system seems thusas important as the level of taxation. "In this regard, a simpler flat tax systemmay be more valuable in the long run than a complex low tax regime," indicates the WCY. The world competitiveness landscape in 2005 The WCY identifies the Unites States' twin deficit (balance of tradeand budget) as a major risk to the world economy. In particular, the US budget deficit puts highpressure on the capital market as the US Federal Reserve is obliged tocontinue to increase interest rates to attract foreign investors. However, due to the high levels of US household debt and the busy real estate market, a sudden increase in interest rates would destroy private consumption and lead to stagnation inthe US economy. In addition,due toa limited 'domino effect', the rise in US interest rates would force European Central Bank, the Bank of Japan and the Bank of England to follow its example. :Other World Competitiveness Scoreboard press release:Publication: IMD World Competitivenss Yearbook 2005 - "Taxes and competitiveness - is there any link?"(12 May 2005) World Competitiveness Scoreboard:Ranking 2005(12 May 2005) World Competitiveness Scoreboard:The World Competitiveness Landscape in 2005: A higher degree of risk : Executive summary(26 April 2005) Press articles FT:Lower taxes are 'not the key' to making countries more competitive, says report The Financial Express:U.S. still the most competitive economy: Study Channel Asia:Hong Kong moves up competitiveness ranking as economic giants struggle Japan Today:Japan 21st in world competitiveness Age:Australian economy slips on global scale Swiss Info:Swiss climb back up ladder of competitiveness Le Figaro:La France reste mauvaise lve de la comptitivit Le Temps:La Suisse retrouve le club des dix pays les plus comptitifs Reuters:Les Etats-Unis dominent le classement IMD sur la comptitivit Neue Zrcher Zeitung:Der grosse Sprung nach vorn Die Presse:Hohe Steuern, Luxus-Strom, teures Internet |